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This is a question about income tax. I was unlawfully terminated

This is a question about...
This is a question about income tax. I was unlawfully terminated by my employer in 2011. I filed a grievance with my union in 2012 and won, receiving $5,000 in back pay in 2013 for work I missed in 2011. I would prefer that income be counted as occurring in 2011 since I had less income that year. I received the award for my employer's 2011 malfeasance in 2013, a year I will work the entire year and thus make more taxable income. Do I have to count the 2013 award for my lost 2011 income as income for 2013 and thus have to pay more tax on it when I pay my taxes next year for 2013 income?
The other side of this question is that my employer made the usual weekly tax deductions for the 6 weeks back pay - SDI, CA STATE, and FEDERAL TAX, which went into those accounts in 2013 as if I earned the income in 2013, even though it was lost income from 2011. Did I then overpay the SDI premiums? Can I get a refund of that extra state and federal tax taken out in 2013 for the 2011 back-pay award, assuming I have enough deductions to qualify for a refund for tax period 2013?
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Answered in 13 minutes by:
9/7/2013
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,592
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Verified

MyVirtualCPA :

Hello! I am a CPA here to assist you with your tax questions. My goal is to provide you with excellent service today.

MyVirtualCPA :

How are you today?

MyVirtualCPA :

Unfortunately you will have to count the income as earned in 2013, because that is when it was paid.

MyVirtualCPA :

You can certainly get a refund of any overpayment of taxes at the end of the year when you file your return

MyVirtualCPA :

If you overpay your SDI premiums that too would be refunded to you

MyVirtualCPA :

Do you have any questions?

Customer:

Thank you for that answer. Since I'm also collecting social security at the age of 63, my income this year will be larger than previous years where I was off work on workers comp.

MyVirtualCPA :

Yes, and so the receipt of the income could impact your social security benefit

Customer:

Whoops, I see this is chat format when I pressed enter. Are you actually there in chat. Where are you physical located?

MyVirtualCPA :

I am physically located near Memphis, TN

Customer:

Great, one of the main characters in my tour was born on a mountain top in TN. He got a tree named after him--Sequoia.

MyVirtualCPA :

That's good

Customer:

How much SS can you collect when working full-time and how does it affect your taxes and future SS payments? At what age can you collect SS and work full-time where it will not increase your tax liability?

MyVirtualCPA :

If 1/2 of your social security plus your other income is over $25,000 or $32,000 if married then a portion of your benefits could be taxable

MyVirtualCPA :

and that doesn't matter what your age is

Customer:

So I should get married this tax year?

MyVirtualCPA :

Well, spouses are sometimes more expensive than taxes. HAHA

Customer:

Good point, you changed my mind on marriage just then. I thought there was an age, like 67, where you can make all the money you want and SS will not be a factor with taxes

MyVirtualCPA :

it's not the tax. If you are under 66, a portion of your social security benefit can be reduced if you receive wages.

MyVirtualCPA :

that's in addition to tax

MyVirtualCPA :

So, you can earn $15,120 per year, and not have a reduction in benefits

Customer:

So I'm confused about this as usual. Right now I'm getting about $1200 per month SS. How is that amount determined by SS admin? I thought they averaged your highest 30 years of income.

MyVirtualCPA :

Yes, that's true.

MyVirtualCPA :

but if you draw your benefit before age 66, your benefit can be reduced if you get wages

Customer:

So what I get monthly from SS now will not affect what I owe in taxes on 4-15-14, but will affect my monthly SS in 2014?

MyVirtualCPA :

That depends on your other income. In addition to having a reduction in benefits because of receiving wages, you also could owe tax on the amount as well

Customer:

I will gross about $45,000 this year working hourly as a busdriver if my SS is added. My employer deducts the usual state and fed taxes and I usually get a refund since I don't have any other income. How will this gross income reduce my SS benefit monthly in 2014?

MyVirtualCPA :

What is your income from driving the bus, and what is the settlement you received?

Customer:

Oh good. That was my original question that we did not address quite, but I would like to discuss that. Are you usually up this late working online?

MyVirtualCPA :

I work all the time.

MyVirtualCPA :

I'm usually only offline from 1am - 8 am

MyVirtualCPA :

I work 7 days a week here

Customer:

Wow, are you a workaholic or just play al the time and work all the time in good balance?

MyVirtualCPA :

I can't do much because I have a 3 year old. I'm home anyways, might as well make money

Customer:

Do you have your own private practice or does JA give you enough business to only do that? Oh. that's perfect then. Good for you. I am trying to transition to making a living as a writer so I can do that anywhere. I do have a lot of questions so I can be clear on the relationship between SS and other income. So are you eastern time? I have 19 more minutes with you so I better get concise.

MyVirtualCPA :

I do some work on my own, but I prefer to work online. I do work for schools online as well.

MyVirtualCPA :

I am on Central time.

Customer:

Perfect, so you can devout all the time you need for your family and help people like me who are taxed beyond ability to understand taxes. So I will not tell SS to discontinue my monthly payments for fear of greater tax owed on 4-15. Ok?

MyVirtualCPA :

Sounds good

Customer:

I mean devote, not devout. I'm a writer right. Good, that makes me feel better. Now given I am making over $40,000 per year driving the bus in Yosemite, will this decrease my monthly SS payment received next year?

MyVirtualCPA :

Yes, it will.

MyVirtualCPA :

By $12,440 in that year

Customer:

By how much, roughly? But because the SS averages 30 years of highest income, making more than ever yearly for me now will increase my monthly payment if I stop working, since the years I worked hardly at all will be dropped from the average?

MyVirtualCPA :

By working now, before age 66, your benefit is reduced about $1,000 per month

Customer:

That would mean I will get almost nothing next year because of making so much this year?

MyVirtualCPA :

That is correct, unfortunately

Customer:

That's ok, I was just worried about SS income affecting my tax liability for this year. So afterage

MyVirtualCPA :

After age 66, your benefit is not reduced

Customer:

So after age 66 it won't matter how much I make at any job?

MyVirtualCPA :

That is correct

Customer:

But when I start collecting the max again at 66 my monthly SS received will be higher than now because from age 63-66 I am making more by far than when I was in my early 30's?

MyVirtualCPA :

It should be slightly higher, yes

Customer:

Great, that makes sense. Now back to my original question: When I received the Board of Adjustment ruling award of 6 weeks back pay a few months ago, $4,500, for my company not working me back in 2011 when they should have--that award must be included in my taxable income for this year, not when it should have been paid in 2011, right, no matter what?

MyVirtualCPA :

that is correct.

Customer:

So that will increase my gross wages as it appears on the W-2 or whatever that tax statement is called, however the fed and state withholding was taken out with the payment as if it was every week, so it might be a wash on the refund?

MyVirtualCPA :

That is all correct

Customer:

I'm feeling better already thanks to you. And the overpayment of the SDI or state disability insurance premium, since a premium was paid anyway every week this year, would be refundable to me?

MyVirtualCPA :

Yes, that's true

Customer:

OK -- now what can I ask? Are you able to see several chat threads at once on your screen and thus answer several or more per session on JA, or are you confined to one chat client at a time?

MyVirtualCPA :

I can talk to up to 5 clients at a time, but you're my only client right now

Customer:

You make me feel special. Is there much competition for clients on JA, or does the business get rationed out so you always get at least one client whenever you want? It seems like CPAs and tax experts would have plenty of clients relative to experts. Are there any times when you are ready to work on JA and no customers for any period?

MyVirtualCPA :

There is lots of competition, yes.

MyVirtualCPA :

And there are periods of times where you may sit for a long time without a client.

Customer:

OK, good to know, but if you build up your own base of clients who request only you, then no other expert can grab them? If a client requests you but you are not available, is there a time limit where JA will give that client to another expert?As a tour-bus driver I make tips, so I have to declare that as income. Is the IRS

Customer:

Is the IRS so overworked and understaffed that they are not likely to audit people in the service - tipping positions, just going after the major bad guy tax cheaters?

MyVirtualCPA :

Everyone is equally subject to audit.

MyVirtualCPA :

Also, clients can request us directly but typically for response time the request lock is good for only 15 minutes

Customer:

I heard somewhere that if I make tips and then pass it forward to a waiter or someone else I tip, then I don't have to declare that tip I just passed forward. Is that an urban tax myth or true per IRS?

MyVirtualCPA :

No, that's not true

Customer:

It seemed to good to be true. If a client requests only you and refuses advice from any other expert, does JA honor that and how?

MyVirtualCPA :

You as a customer do not have to rate any answer, and you can hold off on rating until your requesting expert addresses you

MyVirtualCPA :

Did you have any other tax questions tonight?

Customer:

OK, I'm new to JA and trying to get a feel how it works for you folks as well. Maybe I'll apply as an expert on tours of Yosemite. If you are ever out here in Yosemite I'll give you and your family a complimentary tour as part of your bonus. My girlfriend took over control of my finances, including all credit cards so I cannot give you a bonus tonight, although I want to. I'm consulting with a JA relationship counselor next. I will click excellent however and request you next time, since I will have some more tax questions. Hope you can visit Yosemite Park soon. Good night, I will sleep easier about the SS issue.

MyVirtualCPA :

Night...glad we could enjoy our chat. Have a great night! Your positive rating is thanks enough

Customer:

Yes, but I sure like those tips from my passengers when I get them.

MyVirtualCPA :

I know, but I understand. You can come back and ask for me next time and pay me again :-)

Customer:

Good night then

MyVirtualCPA :

Night!

Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,592
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Verified
Megan C and 87 other Tax Specialists are ready to help you
Ask your own question now
Thanks, Sam for your positive rating. Please come back and visit MyVirtualCPA for any of your tax, finance, or social security needs. It was a pleasure working with you today.

In a couple days you will receive a short survey. Please fill out that survey favorably as it will help with the rankings on the site.

Thanks again
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Megan C
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,592
16,592 Satisfied Customers
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

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